• After Nvidia shares tumbled, CNBC's Jim Cramer on Wednesday reminded investors that it's important to own stocks in a variety of sectors, even ones that may not presently see huge gains.
• Owning a diverse group of stocks helps investors stay in the market when one stock or sector takes a turn, he said.

As Nvidia shares tumbled after the company reported earnings, CNBC's Jim Cramer on Wednesday reminded investors that it's important to own stocks in a variety of sectors, even ones that may not presently see huge gains. Owning a diverse group of stocks helps investors stay in the market when one stock or sector takes a turn, he said.

He acknowledged that diversification can be "a total drag," and it doesn't always buffer against weakness like recent declines in the otherwise burgeoning tech sector. But some stocks aren't meant to yield gains all the time, he added.

"There are going to be bad days where all you want to do is lose less than the market. That, plus the cash you have on the sidelines, are not necessarily meant to help you make money regularly," he said. "They're meant for something bigger: They exist to keep you in the game when the hottest stocks turn cold, like Nvidia has done."

The averages dipped on Wednesday, with the Nasdaq Composite falling 1%, the S&P 500 declining 0.6% and the Dow Jones Industrial Average losing 0.4%. Shares of artificial intelligence behemoth Nvidia also tumbled, closing down 2.10%. Even though the company beat Wall Street's expectations when it reported earnings after the bell, shares declined by more than 6% in extended trading.

Cramer pointed out that it was much easier to own Nvidia before its market cap grew dramatically and garnered widespread popularity on Wall Street. Despite his unabashed fondness for the megacap, he admitted that some investors' fervor for the stock is excessive. Nvidia has become "an albatross around the market's neck because no one stock can be a proxy for the future of the S&P 500," he said.

He added that the CNBC Investing Club's Charitable Trust has trimmed some of its profitable holdings, even as it was difficult to sell as the market went higher.

"I always tell you to own Nvidia, not to trade it. I am not going back on that. But I don't think that's possible unless you have a diversified portfolio as well as some cash on the sidelines so you can handle a stock like Nvidia," Cramer said. "They allow you to stick with Nvidia even when it's getting clobbered like it is tonight. They allow you to stay sane and still own stocks."

Nvidia declined to comment on Cramer's remarks.

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Disclaimer The CNBC Investing Club Charitable Trust holds shares of Nvidia.

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